UP/I 034-03/2013-02/008 Case: Agrokor Dd, Zagreb and Poslovni Sistemi Mercator Dd

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UP/I 034-03/2013-02/008 Case: Agrokor Dd, Zagreb and Poslovni Sistemi Mercator Dd CROATIAN COMPETITION AGENCY Case No.: UP/I 034-03/2013-02/008 Case: Agrokor d.d., Zagreb and Poslovni Sistemi Mercator d.d., Ljubljana, Republic of Slovenia Type of case: Competition – merger Type of decision: Decision on conditionally approved concentration Agrokor-Mercator merger conditionally approved Agrokor has committed to implement the strict and comprehensive measures and conditions to remove negative effects of the concentration on competition, which may be grouped in two categories – structural measures and behavioral measures Analysis The merger in question deals with two undertakings holding retail networks on the whole territory of the Republic of Croatia. The implementation of the concentration will lead to the overlap of activities in the relevant market of retail in groceries which will be particularly noticeable in certain counties. At the same time, implementation of the concentration will also have effects on the market for supply of goods. By the implementation of concentration, undertaking Konzum, the affiliated company of Agrokor will as a leading undertaking on the retail market further strengthen its position on the territory of Croatia and increase asymmetry of the market as a consequence. Besides, purchasing power of Konzum would be strengthened towards suppliers. Namely, Agrokor is vertically integrated holding system which is besides the retail in groceries market also present on the supply markets. Market power of undertaking Konzum being part of this system and its influence on the relevant market derives from the fact that Konzum is at the same time the supplier of groceries and in this supply of groceries, retailers which are at the same time its competitors appear as purchasers. This merger would additionally strengthen negotiating power of Agrokor towards suppliers of undertaking Konzum on one hand, and in relation to buyers of food production chain of the group, on the other hand. This would enable Agrokor to spill over its economic and market power from one market to the other and his could also indirectly affect the structure of the retail market. All this is very important in the context of possible foreclosure of the markets for competitors and purchasers. Therefore, the Agency allowed the concentration conditionally, obliging Agrokor to comply with very strict and comprehensive measures and conditions to remove negative effects of the concentration on competition. In order to respect the requirements set by the Agency, Agrokor modified and complemented proposed measures and obligations several times. Finally, on 25 February 2014, the Agency accepted proposed measures and conditions as realistic and sufficient to remove negative effects of the concentration on competition. Accepted measures from the final proposal can be divided in two groups: a) Structural measures in the form of divestiture of sales facilities of the parties to concentration with precisely determined conditions with the aim to remove negative horizontal effects of concentration. b) Behavioral measures in the form of monitoring the behavior of Agrokor towards suppliers of the parties to the concentration, especially towards suppliers of Mercator-H with the aim to remove negative vertical effects of the concentration. Structural measures On the territory of Croatia, Agrokor committed to divest total of 96 stores from combined network of Konzum and Mercator whose total revenue makes up for almost 60% of revenue of Mercator-H from 2012. Structural measures to divest are primarily aimed at City of Zagreb and Zagreb County where Konzum used to be the market leader prior to the concentration and where the implementation of concentration would have the strongest negative effect. Consequently, Agrokor will divest 26 stores on the territory of the City of Zagreb and 19 stores on the territory of the Zagreb County. In other 13 counties total of 51 stores will be divested. Divestiture means sale, termination of lease contract, or lease of stores for a long-term period (for at least 10 years without possibility of early notice of the contract). Agrokor cannot repurchase divested stores or lease them before the expiry of the dead-line of 5 years from the day of the divestment. Dead-line for divestiture is six months from the day of the acquiring of control by Agrokor over Mercator. However, after it receives the decision of the Agency, before it acquires control over Mercator, the Agrokor shall immediately start searching for an up-front buyer ready to take over the stores. Buyer cannot be a person connected with Agrokor or Mercator or with their board members and must have financial means providing reasonable assurance that they will be able to operate on the market. In the case that for some stores there are more qualified bidders, preference will be given to a direct competitor on the market offering a higher price or to a bidder offering to acquire more stores. Agrokor has to offer sale or lease at a reasonable price. It is a price which is not considered meaningless and does not indicate a reasonable doubt as to the conclusion of a disadvantageous contract within the meaning of provisions of the Criminal Act of the Republic of Croatia. Stores that Agrokor fails to divest within six months of taking control over Mercator, Agrokor shall offer for sale or lease by public notice in at least one national general information daily or weekly publication, and in at least one regional general information daily or weekly publication, that is most red in the county and/or city where there are stores proposed for divestiture. In the next three years, the public notice will be repeated every six months. Offer for sale or lease will be all the time available on official homepages of Agrokor, Konzum and Mercator-H. In the case of objective impossibility of selling or leasing, Agrokor may, within three months after the dead-line for divestiture, change the use of stores. As final measure, all stores that are not sold, leased or transformed to other activities, Agrokor shall close within one month after the expiry of the dead-line for the change of their use and shall not open them again before the expiration of the five-year dead-line. 2 Behavioral measures Agrokor is vertically integrated system acting at the same time as the supplier of its products to Konzum competitors as well as the seller of its own products in Konzum sales network. In specific groups of those products Agrokor also has a significant market share. Therefore, the Agency concluded that the structural measures for divestiture are not alone enough to limit sufficiently the further strengthening of Konzum's purchasing power on the retail market. Such strengthening could lead to decrease of availability (placement) on Konzum shelves of the products of those companies that are not a part of Agrokor group because there might be a spill-over of the market power from the markets in which the producers from Agrokor group are present as suppliers of grocery products. To remove those effects, Agrokor has committed to accept behavioural measures with primary purpose to protect Mercator-H's suppliers and entry and/or expansion of competition on Konzum’s shelves in relation to key product categories from producers that are a part of the group. In Mercator-H's hypermarket and supermarket stores, during at least three years from control being acquired by Agrokor, exposure on the shelf for three of their best-selling products shall be enabled to each of five biggest Mercator-H’s suppliers under the following conditions: a) suppliers that are at the same time suppliers of Mercator-H and Konzum in the adequate product category, exposure on the shelf will be enabled under the conditions that are not worse from the ones that Konzum approves to their competitors in its own sales network b) suppliers that are Mercator-H's (and not Konzum's) suppliers only, exposure on the shelf will be enabled under the conditions valid for those suppliers in the adequate product category on the day of acquiring control. Those conditions will be applied during the period not shorter than one year, and after that under the conditions that are not worse from the ones that Konzum approves to their competitors in its own sales network. Besides that, it is Agrokor’s obligation to ensure in Konzum hypermarkets and supermarkets during at least three years from acquiring the control over Mercator the exposure of products on 30 percent of the shelf of at least three competitors in product segments where producers from Agrokor group have high market share (above 40 percent), and under the conditions that are not worse from the ones approved by Konzum for that product segment to competitors of those suppliers in Konzum’s sales network. Dead-lines Dead-lines for Agrokor to execute its obligations as a rule commence on the so-called Starting Day, or on the date of acquiring control over Mercator which needs to be notified to the Agency within 48 hours. Exceptionally, the dead-line for finding the so-called up-front buyer starts with the date of receipt of Agency's decision. Monitoring Implementation of measures shall be monitored by a trustee. The trustee shall be appointed by the Agency following Agrokor's proposal. Proposed trustee may be natural or legal person, who is not personally or capitally connected with the parties to the concentration and possesses the necessary qualifications. This person cannot be in or become exposed to a conflict of interests. The trustee that is approved by the Agency shall monitor and report based on his/her irrevocable mandate and under no influence by the notifying party or by its affiliated companies. 3 Conclusion The Agency has concluded that the implementation of measures for removing the negative effects of this concentration indirectly leads to positive effects on competition and consumer interests that would not occur in the absence of this concentration.
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